🎓 What is Financial Planning and Why is it Important?

What is financial planning?

Financial planning is the process of evaluating your finances and creating a plan for the future to achieve your financial goals.

Planning your finances generally consists of taking a look at all of your debt, expenses, and income. This helps you create an understanding of your financial situation and what steps you need to take next.

When planning your finances you also want to think about your long-term life goals and how your finances will affect those goals. For example, if you want to own your own home and have multiple kids you want to make sure you are preparing by saving and investing for a home large enough to house kids.

Financial planning can also be done with a financial planner or advisor. Having someone there to help and guide you through the complexities of financial planning can be a huge help, but they can also be pretty expensive.

Why is financial planning soooo important?

Financial planning is extremely important for every single person no matter who you are. Whether you like it or not money controls many parts of your life and not managing it correctly can lead to huge issues down the line and limit your opportunities.

Financial planning lets you take control of your finances so you can have the life you want. Without financial planning, you will fall behind financially and you will not be able to take care of yourself or those you love and care about.

Deciding not to take financial planning seriously is a huge mistake and I would go as far as to say it is selfish to not properly manage your finances.

Not properly planning your finances makes you more reliant on other people for help financially and it also restricts your ability to help others. I have seen countless people who did not plan their finances struggling and seeking help from those who have properly managed their finances.

I can not stress enough how important financial planning is and how seriously you need to take it. So now lets talk about how you can actually get started with financial planning for yourself.

How to get started with financial planning.

The first step to creating a financial plan is to think about your long-term goals in life and create financial goals that will help you reach your life goals. The financial goals could be things like…

• Debt-free

• Owning your own home

• Have a strong emergency fund

• $500k saved for retirement

• $3k passive income per month

• Ability to travel the world

• Kids college paid for

The second step to creating a financial plan is to figure out your current financial situation. To do this you need to figure out your monthly expenses, monthly income, all your assets, all your liabilities (debt), and any savings or cash you have. You also want to know how much you have stored away for retirement and other future plans.

The next step is to now create specific goals. These are the goals and things you need to start doing now in order to achieve your goals you set in step one. These goals need to be much more specific and measurable than the goals in step one, and they should be based on your current financial situation. Some examples of these goals would include…

• Save 30% of income

• Cut unnecessary spending in half

• Get rid of unnecessary subscriptions

• Build credit score by paying all debts on time

• Pay off $1,000 of debt a month

• Invest $1,000 a month

• Decrease grocery spending by $200 a month

• Save enough for a downpayment by next year

After you have created these specific goals and you know how to achieve them it is now time to make sure you stick to these goals. Fixing your finances can be hard and mentally draining especially if you are in a tough situation.

This is why the next step is to create systems and accountability for yourself so you can stay on track to accomplishing your goals. You can increase accountability by having monthly reviews with yourself or your family. You can let your friends and family know of your goals so they can help keep you accountable. You can also hire a financial planner or coach to help keep you on track.

In order to make sure you accomplish your goals you also need systems to keep you on track and make it easier to follow through with your goals. This could be things like setting up automatic payments on your credit card, setting up auto-invest on your brokerage app, and setting up spending limits for yourself.

The final step is to simply, reevaluate every few months to make sure you are still on track and to set up any new goals you might need or want.

Should you hire a financial planner?

A financial planner can help you manage your finances, create and stick to goals, and help you stay accountable. There are many types of financial planners out there to help you with things like estate planning or retirement and even managing an inheritance. With all their benefits they also can come with a hefty price though.

My advice would be to only hire a financial planner if you are in a more extreme or desperate situation. Financial planning can be easily done on your own in most cases but there are a few situations where you might really want a financial planner, here are some of those situations…

• Drowning in debt, a financial planner can help you navigate crippling debt and even let you know when it might be time to declare bankruptcy.

• Large sum of money, if you have recently been lucky enough to gain a large sum of money from an inheritance or some other reason you might want to hire a financial planner to make sure you use that money wisely.

• Investing, if you are big into investing or alternative assets like crypto, having a financial planner can help guide you and make sure you don’t fall for scams or make poor investment decisions. I have heard too many horror stories of people losing it all to financial scams that could have been easily avoided with a financial advisor or planner.

• Retirement, if you are nearing retirement and aren't sure if you will be able to actually retire a financial planner can be super useful. I have heard stories of people working 10-20 more years than they had to because they did not fully understand their finances.

• Complicated financial situation, if you are in a more complicated financial situation like owning a business or being a partial owner of a company a financial planner can help you navigate and understand your complicated financial situation.

In the end, managing your finances in 90% of cases should be pretty simple and easy to do by yourself, but anytime you are trying to do something more complicated or things happen that make your financial situation more complicated than most, a financial planner is always a great idea.

Start investing today

• Webull Best for more active investing (get up to 75 free shares by depositing over $100)

• M1 Finance Best for more passive investing above $10,000 (get $75 if you invest more than $10,000)

• Charles Schwab Best for custodial accounts (get $100 by investing over $25,000)

• Fundrise Best for buying alternative investments ($25 for signing up and making a $10 deposit)

• Yahoo Finance Best for economic news

• Finviz Best for stock analysis and screening

Disclaimer: Most links are affiliates but I 100% endorse and use all of my promotions, we also split the promo reward when you sign up